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Financial Acct Ch 15

QuestionAnswer
Most companies generate cash from their operations. this can can be use for 1. investing in current operation2. investing in temporary investments to earn additional revenue3. investing in long-term investments in stock of other companies for strategic reasons
investments are made with left over cash
Invest in: temporary- marketable securities, sell quicklylong term - intend to keep
instead of letting cash remain idle, most companies invest. invest in securities: debt securitiesequity securities
debt securities are notes and bonds that pay interest and have a fixed maturity date
equity securities which are preferred and common stock that represent ownership in a company and do not have a fixed maturity date
Investments or Temporary investments are reported in the current assets section of the balance sheet
the primary objective of investing in temporary investments is to 1. earn interest revenue2. receive dividends3. realize gains and increase in the market price of the securities
investments in certificates of deposit and other securities that do not normally change in value are disclosed on the: balance sheet as cash and cash equivalents
four reasons you buy stock of another company 1. reduction of cost2. replacement of management3. expansion4. integration
accounting for bond investments includes recording the following perchase of bondsinterest revenuesale of bonds
Purchase of Bonds: the purchase of bonds is recorded by debiting an investments acct for the purchase price of the bonds. if the bonds are purchased between interest dates, the purchase price includes accrued interest since the last interest payment.
Created by: inkybu89